Insolvent Insurance Companies and Bankrupt TPAs
Insolvent insurance companies have seemed to subside over the last decade to a point of almost nonexistence. Check out my last article on insurance industry investment returns. I found the 10-year average return according to S&P’s analysis as profitable for investors. Great! Now, how does the other side of the coin look – or the insurance carriers and TPAs that have gone into receivership. TPAs (Third Party Administrators) go bankrupt as companies and individuals do not buy policies from them.
Two insolvency listings covered many of the carriers – the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) and the venerable Insurance Journal liquidation archives.
One caveat is that if the insurance carrier was sma;l, less than three states of coverage, that company may not have made it into the NOLHGA. The most current insolvent insurance company liquidation was Colorado Bankers Life Insurance Company and Bankers Life Insurance Company.
A closer inspection of the chart below shows that the 1980s contained most of the defaults, with a few rare instances after that decade. The last active year was 2010, with four health or life insolvent insurance companies. Fifteen years of very few failures means long-term stability.
According to the NOLHGA the definition of liquidation is:
When an insurance company goes out of business, it doesn’t declare bankruptcy. Instead, a court issues an order of liquidation with a finding of insolvency, which is why failed insurance companies are sometimes called “liquidations” or “insolvencies.”
The Insurance Journal lists the insolvencies over the last 20 years, usually Property and Casualty companies.
The Quiet Part – TPAs
When a TPA fails, most states list them as general bankruptcies. You will very likely not find them in any type of insurance listing. TPAs handle the claims for self-insureds, associations, or carriers. I, myself, have worked for three different TPAs that have gone into bankruptcy or closed long after I had worked there.
2 Responses
Good article
Thanks for commenting on the article. Insolvent insurance companies receive press coverage when they fail. TPAs for self insureds do not have the same coverage as they do not provide policies. Many times, the failing TPAs are bought by other companies for a reduced price.